FVG: Fair Value Gap
Also known as: FVG, imbalance, inefficiency, three-candle gap
What is it?
A fair value gap is a price range that a fast move skipped over - a three-candle pattern where the first candle's high sits below the third candle's low, leaving a band that the middle candle never traded back through. On EUR/USD 15-minute, candle one tops at 1.0842. Candle two is a large bullish candle. Candle three bottoms at 1.0858.
The 1.0842-1.0858 band is the fair value gap; price returned to its 1.0850 midpoint before continuing higher.
The 16-pip band between 1.0842 and 1.0858 is the fair value gap: price passed through those levels so quickly that very little business was done there. Two hours later price retraces into the band, trades down to 1.0850 - the gap's midpoint, often called consequent encroachment - and continues higher. That midpoint is where most of the attention sits, which is why traders reference the 50% level rather than expecting the full range to fill. The honest caveat is that many gaps never fill at all.
Strong trends routinely leave imbalances open for days or permanently, so a gap frames a zone worth waiting for rather than a level price owes you a visit. Holding a losing position on the assumption a gap must fill is one of the faster ways to turn a small loss into a large one, and your capital is at risk.
Why it matters: A fair value gap marks prices the market moved through too quickly to trade properly, which is why price so often returns there before continuing.
Bullish FVG = the band between candle 1 high and candle 3 low
Gaps give you a defined zone to wait for instead of chasing, but many stay unfilled, so they frame an entry rather than promise one.
Real-world example
On EUR/USD 15-minute, candle one topped at 1.0842 and candle three bottomed at 1.0858, leaving a 16-pip fair value gap that price retraced into at 1.0850 before continuing higher.
How SignalBots handles it
SignalBots signals publish a defined entry level rather than a market-now instruction, so you can wait for price to return into a gap instead of chasing the move that created it. See /risk-warning.
Pro tip
The gap's midpoint is where most traders act, so treat the 50% level as your reference point rather than waiting for the full range to fill.
Common pitfalls
Assuming every fair value gap must fill, and holding a losing position waiting for a retrace that a strong trend never delivers.
Frequently asked questions
How do I identify a fair value gap?
Look at three consecutive candles. If the first candle's high sits below the third candle's low, the band between them is a bullish gap; if the first candle's low sits above the third candle's high, it is a bearish one.
Do all fair value gaps get filled?
No. Many do, which is why they are watched, but strong trends routinely leave gaps unfilled for days or permanently. Treating a fill as inevitable is one of the fastest ways to hold a losing position far too long.
What is consequent encroachment?
It is the 50% midpoint of the gap. Many traders use it as the reference level rather than the full range, entering there or treating a close beyond it as evidence the imbalance is being properly rebalanced.
Is this the same as a price gap?
No. A price gap is a break between one session's close and the next session's open, with no trading in between. A fair value gap forms inside continuous trading, where price simply moved too fast to trade every level.
Which timeframe should I mark them on?
Mark them on the timeframe you take entries from, then check whether they sit inside a larger gap on a higher timeframe. Gaps on one-minute charts are numerous and individually of little consequence.
Trading involves substantial risk of loss. Historical and backtested results do not guarantee future performance. Read the full risk warning.
